(FORTUNE Magazine) – THE SIEGE BEGINS just before 9 A.M. on a sunny Thursday. Some 120 people -- police officers, Chicago Housing Authority employees, and other city officials -- surround 340 South Western Avenue, a dilapidated, high-crime highrise on the city's West Side. The CHA workers brandish clipboards, brooms, paintbrushes, and welding torches. The aim: to reclaim the building from the gangs and squatters and make it safe, clean, and habitable once again.

Many of the public housing projects that are home to 3.5 million Americans have sunk into drug-ridden, violent squalor. The unannounced raid on No. 340 last August was part of Operation Clean Sweep, a bold and much-debated attempt to revitalize Chicago's projects, which are among the worst in the U.S. The architect of the program is Vincent Lane, 47, chairman and managing director of the CHA. Hard-working and disarmingly candid, Lane is trying to rescue the nation's second-largest housing authority (after New York's) from two decades of mismanagement, apathy, and political patronage. In 16 months as head of the CHA, Lane, a self-made real estate millionaire, has emerged as one of the most innovative and acclaimed managers in the public sector. He's been hailed by tenants, toasted by the media, and lauded by business. ''Vince Lane is very forthright, very smart, and very aggressive,'' says H. Laurance Fuller, president of Amoco and a CHA advisory committee member. HUD Secretary Jack Kemp, whose beleaguered department supplies most of CHA's $150 million operating budget, is said to be so taken with Lane that he tried to lure him to Washington. Lane, a smelter foreman's son who grew up across the street from a housing project, is a University of Chicago MBA and one of three partners in a property development and management company. His entire career, until now, has been in the private sector. But he is no stranger to the ways of government: While Lane and his partners have not been implicated in the influence-peddling schemes that flourished under former HUD chief Samuel Pierce, his firm has benefited enormously from HUD subsidies for low- and moderate-income housing. The renaissance at the CHA shows that, with the right managers and in the right political climate, private sector techniques can succeed where government bureaucracies have failed. It also suggests that business can -- and should -- play an important role in public sector management. Says Lane: ''You can run even a social service agency like a business.'' How? By hiring the right people, controlling costs, and meeting the needs of the customers -- in this case the 200,000 mostly poor, largely black residents of CHA buildings. Lane has led an agency-wide shakeup that will include replacing more than 300 of the authority's 2,100 supervisors. He brought in Quetico Centre, a Canadian consulting firm, to teach turf-conscious bureaucrats how to work in teams. Chicago's business leaders have traditionally been less involved in civic affairs than their counterparts in other cities, partly because the late mayor Richard Daley's machine ran so smoothly, but they have quietly helped Lane with recruiting, lobbying, and strategic planning. With the aid of Buccino & Associates, a corporate turnaround firm, Lane has revamped antiquated procurement and payment systems. He is also encouraging tenants to manage their own buildings. But his first priority is security. THE SWEEP at No. 340 moves quickly. Bemused residents, mostly young women and small children, watch workers erect barricades and install a metal detector to spot weapons. Nearby, welders begin putting up something this building has never had before -- a lobby door. Everyone found to be a bona fide resident will be photographed and issued an identity card. The tenants will need the cards to get past new round-the-clock lobby guards. Across the courtyard, workmen splash bright orange and yellow paint on aging playground equipment. As they do, small teams of police officers and CHA workers begin a door-to-door search. If they find guns and drugs, they make arrests. As a first step toward fixing problems that have been neglected for years, they are also taking inventory of leaky faucets, broken radiators, and cracked windows. No. 340 South Western is just one of the CHA's 364 buildings, nearly all of them in urgent need of attention. Violent gangs with names like the Vice Lords and the Disciples control more than 120 of the CHA's 153 highrises and use them as bases for dealing drugs. So far, for lack of funds, the CHA has swept just 20 buildings. Chicagoans who take issue with Operation Clean Sweep, particularly academic experts on public housing, object that this piecemeal approach amounts to dabbing topical antiseptic on a patient with terminal gangrene. Lane has spent $1.3 million so far on Clean Sweep; he has little chance of finding the $1.5 billion he says he needs to secure and repair every CHA property. Congress is expected to vote a total of $2 billion in modernization funds for all 3,200 U.S. public housing agencies. Lane's showcase is Rockwell Gardens, which includes 340 South Western. Once one of the city's most violent housing projects, the eight-building, 1,127- apartment complex has now been completely swept. Lane claims that much of the initial and ongoing cost of securing, cleaning, repairing, and patrolling Rockwell -- an estimated $4.5 million for the first year alone -- will be recouped through improved rent collections, lower vacancy rates, and reduced vandalism. One benefit is already clear: The residents once again feel safe in their homes. ''The kids can come out and play now,'' says Mary Baldwin, a tenant for 20 years. ''They couldn't before. There was shooting at night, and there was shooting during the day.''

Ultimately, Lane would like to convince the U.S. taxpayer that investing in existing public housing makes economic sense, especially when decent low- income dwellings are in short supply. America's public housing stock represents a $70 billion investment that is wasting away. Says Lane: ''I want to show the farmer in Iowa, whose only contact with public housing is the negative things he sees on TV, that it doesn't have to be all bad, not if you get good managers.'' The CHA, founded in 1937, was once one of the most highly regarded housing authorities in the country. But it gradually fell victim to misguided policies, callous managers, and changing demographics. In the 1950s Dick Daley, father of the present mayor, presided over an enormous highway construction program that displaced thousands of poor blacks and segregated them into sprawling, badly built highrise developments on the fringes of the center city. In defiance of federal regulations, the CHA made no effort to retain or attract moderate-income tenants. ''They chose to serve only the poorest of the poor,'' says Mary Decker, executive director of the Metropolitan Planning Council, a prominent civic group. ''It didn't work.'' Today roughly 97% of the residents are black, and 75% are on welfare. Unmarried women head some 80% of the families. VINCENT LANE became head of the CHA by accident. By 1988 the agency had endured eight directors in five years, a takeover threat from HUD, and a bookkeeping crisis so bad that outside accountants couldn't complete an audit. (In 1987, HUD took back $7.6 million in grant money because the CHA hadn't spent it within the deadlines.) In desperation, then-mayor Eugene Sawyer agreed to a rescue program drawn up by an ad hoc committee of businessmen and civic leaders. But the plan nearly foundered after the prospective CHA managing director backed out and former governor Richard Ogilvie, who had been named chairman, died of a heart attack. Lane, who was to be a board member, agreed to take on both top positions. ( Before he could, however, he had to resolve a conflict of interest. He retains a 25% stake in his company, which manages 435 units in clean, secure, low- and moderate-income apartment buildings that get HUD subsidies administered and monitored by the CHA. HUD transferred jurisdiction over the units to the county housing authority. Even Lane's detractors concede that he has been adept at pleasing disparate interests -- CHA residents, HUD, City Hall, business, and the media. ''He's one of those guys who's just natural with the press and on TV,'' says George Ranney Jr., 49, a lawyer and former Inland Steel executive who is Lane's chief link to the business community. Ranney spends two days a week at the CHA as a strategic adviser. Lane is also a born diplomat. ''He's not confrontational,'' says Gertrude Jordan, administrator of HUD's Chicago region. ''When we have disagreements, they're not bitter.'' After the American Civil Liberties Union complained that the original sweep program amounted to conducting searches without warrants, Lane sent his lawyers to hammer out a set of mutually acceptable guidelines. Despite Lane's talents, it's an open question whether anyone can run an agency as fouled-up and underfunded as the CHA. The obstacles are many: For example, when a gang is rousted from one highrise, it often moves its operations -- and its mayhem -- next door. Says James S. Fuerst, a professor of social work at Loyola University and an observer of the CHA for four decades: ''Vince is probably the best housing administrator we've had in 20 years, but he's been asked to clean up the Augean stables, and he's not Hercules.'' True. But given the scope of the problem and the lack of funds, Lane has made impressive progress. His principles may sound like Business 101, but at the CHA they represent major breakthroughs: -- Know your customer. In contrast to most of his predecessors, who remained captives of the CHA's downtown headquarters, Lane regularly visits the developments and consults with residents. He conducts evening ''town hall'' meetings to elicit tenants' complaints about maintenance. Next morning, he dispatches emergency repair teams. -- Get your finances in order. Says Lane: ''If you don't understand what your assets are, what your liabilities are, and what your cash flow is, then you are going to make bad management decisions even if you are trying to do good.'' When Velma Butler, 39, Lane's chief financial officer, arrived a year ago, she found a system run largely on ''hunches and guesses.'' Says she: ''We didn't even know how many employees we had.'' -- Recruit competent people. Luring qualified managers is a tough job, Lane admits. It took six weeks to persuade Butler, a CPA, to come on board -- and she wasn't from the business world but from the federal General Accounting Office. Lane's plan to replace most of CHA's ill-trained project managers, many of them political appointees, has already produced a class-action lawsuit. One encouraging sign: Half the people applying for managerial jobs have had some private sector experience. -- Get the feds on your side. HUD still classifies the CHA as a ''distressed'' agency, which means that HUD must approve every expenditure over $15,000 -- an agonizingly slow process. But Lane plays well in Washington. HUD seems likely to give him $30 million to extend the sweep program to 75 of the most troubled highrises. WHERE WILL Vince Lane go from here? He dismisses speculation that he will run for mayor. His next move, he insists, will be back to his own company. He plans to stay at the CHA five years -- long enough, he hopes, to help restore to public housing some of the respect it had when he was growing up. That process is clearly under way. Ask Ann Swan, 50, president of the newly formed 4414 South Cottage Grove Avenue Resident Management Corp. and a CHA tenant for 13 years. As part of a pilot project, residents of Swan's building will soon take over some of CHA's managerial functions, including screening prospective tenants and evicting delinquent ones. Eight years ago gang members brandishing guns, knives, and an ax pounded on Swan's door trying to dragoon her daughter, Suandra, then a teenager, into their ranks. Swan, normally soft-spoken, warded them off with loud threats and a loaded handgun. Frightened by the incident, Suandra dropped out of school and never went back. Today Swan's building is clean and safe. Gangs no longer gather outside her corner apartment to smoke their ''stuff,'' and they no longer stash their weapons in the mailroom. She and her fellow residents won't reverse 20 years of deterioration at a stroke. But thanks to Lane, there is an unfamiliar feeling in some of Chicago's public housing projects -- hope.